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203 F.

2d 679
53-1 USTC P 10,894

In re INMAN'S ESTATE.
SHILAND,
v.
COMMISSIONER OF INTERNAL REVENUE.
No. 175, Docket 22551.

United States Court of Appeals,


Second Circuit.
Argued March 11, 1953.
Decided April 6, 1953.

Winthrop, Stimson, Putnam & Roberts, New York City, for petitioner;
Allen T. Klots, Henry L. Steitz and Merrell E. Clark, Jr., New York City,
counsel.
H. Brian Holland, Asst. Atty. Gen., Ellis N. Slack, Lee A. Jackson and L.
W. Post, Sp. Assts. to Atty. Gen., for Commissioner of Internal Revenue,
respondent.
Before AUGUSTUS N. HAND, CHASE and CLARK, Circuit Judges.
AUGUSTUS N. HAND, Circuit Judge.

The decedent, Charles S. Inman, who died on August 2, 1946, created a trust on
December 27, 1940, for a term of ten years; the trust fund was to be divided
into three equal parts for the benefit of his three nephews who were made the
trustees. The provisions of the deed of trust in so far as here relevant read as
follows:

'To hold, invest and reinvest one of said parts and pay over the net income of
say part to (the nephew) individually. Upon the death of (the nephew), or on
December 27th, 1950, the trust as to that part held for the benefit of (the
nephew) shall terminate. The trust as to say part may be also terminated at any
time by the joint action of all three persons named as trustees, but such action

shall not be effective if the grantor is alive at that time unless the grantor shall
likewise give his consent to such termination in writing. If (the nephew) is alive
at the termination of the trust as to said part, the trustees shall deliver and pay
over to (the nephew) outright and free from all trust the principal of the said
part. Upon the termination of the trust as to said part prior to said date by
reason of the death of (the nephew), the trustees shall pay over the principal of
the trust as to said part to or for the benefit of those persons related to (the
nephew) by blood or marriage and in such proportions and upon such terms in
trust or otherwise as (the nephew) may appoint by his last will and testament.
Upon the failure of valid appointment, the principal of the trust of said part
shall be delivered to those persons who would then be entitled to the personal
estate of (the nephew) were he to die intestate pursuant to the laws of the State
of New York as existing at the time of his death.'
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The Tax Court held that the power retained by the decedent to consent, in
conjunction with his three nephews, to the termination of the trust required its
inclusion in his gross estate because of the provisions of Sec. 811(d)(1) of the
Internal Revenue Code.1 Commissioner of Internal Revenue v. Estate of
Holmes, 326 U.S. 480, 66 S.Ct. 257, 90 L.Ed. 228. The court further held that
the legal incompetency of the decedent prior to his death did not end his power
to terminate. Hurd v. Commissioner, 1 Cir., 160 F.2d 610. The only assignment
of error relied on by petitioner Andrew Shiland, who became the executor of
decedent's estate, relates to the Tax Court's determination that the amount
includible in the gross estate was the value of the trust corpus minus only the
value of the unexpired portion of the term of years during which the nephews
were absolutely entitled to the income.

The petitioner argues that the actuarial value of a life estate in the corpus of the
trust for each of the three nephews must be excluded from the decedent's gross
estate since the control retained by the decedent over the trust could in no event
alter the nephews' right to receive the income for life. Although the
beneficiaries were not in terms given a life estate, they evidently had at least its
equivalent, for there was no contingency under which they could receive a
smaller interest. If they died prior to the expiration of the ten year period they
plainly would have enjoyed a life estate; if they survived the ten year period or
the trust was terminated earlier they would receive the fee. To say that the fee
would not include the right to enjoy the income for life is to ignore realities.
Further, as the petitioner points out in his brief, a transfer to 'A for life, and if he
lives for ten years or if the trust be terminated before then, to A in fee' at the
very least gives A the value of a life estate which would be deductible from the
settlor's gross estate if the reservation of power to terminate required inclusion
under Sec. 811(d)(1). The use of a different wording obviously should not alter

the estate tax result.


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It is clear that only those interests, the enjoyment of which is controlled by the
decedent through the retention of some power, are taxable under Sec. 811(d)
(1). Where a power to alter interests in income by accumulation or otherwise is
reserved by a decedent, together with control over the remainder, the entire
corpus of the trust is taxable. See Commissioner of Internal Revenue v. Estate
of Holmes, 326 U.S. 480, 66 S.Ct. 257, 90 L.Ed. 228; Commissioner of Internal
Revenue v. Newbold's Estate, 2 Cir., 158 F.2d 694; Hurd v. Commissioner, 1
Cir., 160 F.2d 610; Zirjacks v. Scofield, 5 Cir., 197 F.2d 688. However, where,
as in the case at bar, the power retained only affects the remainder, the value of
the remainder is all that is included in the gross estate under Sec. 811(d)(1). See
Thorp's Estate v. Commissioner, 7 T.C. 921, affirmed 3 Cir., 164 F.2d 966,
certiorari denied 333 U.S. 843, 68 S.Ct. 660, 92 L.Ed. 1126; Hauptfuhrer's
Estate v. Commissioner, 3 Cir., 195 F.2d 548, certiorari denied 344 U.S. 825,
73 S.Ct. 26. The Tax Court relied on our decision in Dominick's Estate v.
Commissioner, 2 Cir., 152 F.2d 843, petition for certiorari dismissed329 U.S.
693, 67 S.Ct. 628, 91 L.Ed. 606. But the main holding in that case was
subsequently overruled by an amendment of Reg. 108, Sec. 81.17. T.D. 5512,
1946-1 Cum.Bull. 264. Moreover, that decision involved Sec. 811(c) governing
transfers taking effect at death.

Our conclusion is strengthened by the anomalous result produced by the Tax


Court's method of valuation. Since only the value of the trust's unexpired term
of years at the date of the decedent's death would be subtracted from the value
of the corpus in computing the taxable amount, the estate tax would vary
inversely with the length of time during which the decedent still retained the
power to consent to the termination of the trust. Thus, under the Tax Court's
holding, if the decedent had died one day before the expiration of the trust and
of his power to terminate, the tax would be substantially greater than that due
had he died immediately after the creation of the trust when his power to
terminate still would have had almost ten years to run. Yet it was his retention
of this power which resulted in the inclusion in the gross estate.

The value of the principal of the trust on August 2, 1947, the optional date, was
$171,393.55. The parties have stipulated that the actuarial value of a life estate
for the three nephews is $112,287.15. Consequently the amount includible in
the gross estate is $59,106.40.

Accordingly the decision of the Tax Court is reversed and the case remanded
for entry of judgment in accordance with this opinion.

'Sec. 811. Gross estate


'The value of the gross estate of the decedent shall be determined by including
the value at the time of his death of all property, real or personal, tangible or
intangible, wherever situated, except real property situated outside of the
United States'(d) Revocable transfers
'(1) Transfers after June 22, 1936. To the extent of any interest therein of which
the decedent has at any time made a transfer (except in case of a bonafide sale
for an adequate and full consideration in money or money's worth), by trust or
otherwise, where the enjoyment thereof was subject at the date of his death to
any change through the exercise of a power (in whatever capacity exercisable)
by the decedent alone or by the decedent in conjunction with any other person
(without regard to when or from what source the decedent acquired such
power), to alter, amend, revoke, or terminate, or where any such power is
relinquished in contemplation of decedent's death; * * * .' 26 U.S.C.A. 811(d)
(1).

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